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$1 trillion industry offers huge potential to Irish market Back  
Hedge funds can play a much bigger role in Ireland’s investment funds industry, through the increasing allocation by pension fund managers of assets to hedge funds, the establishment of new managers, the use of hedge funds by private clients, and the continuing development of an Irish based servicing industry, delegates at the Irish Alternative Investment Forum were told.
The hedge funds industry worldwide is worth more than $1 trillion and represents a major opportunity for Ireland, Aidan Tiernan, a partner with Ernst & Young told delegates at the Irish Alternative Investment Forum organised by the Irish Association of Pension Funds (IAPF) and the Department of Banking and Finance at University College on May 20th.

‘Ireland is increasingly recognised internationally as a centre of excellence for hedge fund administration. Hedge funds have become an integral part of the investment funds industry in Ireland and are set to contribute further to its ongoing growth, said Tiernan told the conference held at the Michael Smurfit School of Business.

He added that one of the many drivers of the international growth in hedge funds assets is the increasing allocation by pension funds to alternative investment strategies. This trend, which began in the US, has become a reality in Europe with many pension fund managers indicating their commitment or intention to allocate assets to hedge funds as part of their risk diversificattion approach.

Pointing to the establishment of an indigenous hedge fund management industry, Tiernan said, ‘While Ireland’s reputation in the alternative investment industry has been built on the administration of international hedge funds, there is an increasing number of Irish domiciled hedge funds which are managed by Irish managers and subject to Irish regulatory oversight. These funds reflect the growing awareness and recognition of hedge funds as an important asset class in the Irish investment market’.

Private clients
Cathal Fitzgerald, head of group portfolio management at Anglo Irish Asset Management, spoke on the use of hedge funds in portfolios, drawing on the experience of Anglo’s Geneva operation.

The Geneva bank has assets of approximately €1.1 billion under management, of which €4400 million is invested in hedge funds, which illustrates how keen their private clients are on alternatives.

The differences between a traditional private client portfolio, and a Geneva private client portfolio, are as follows:

Going forward he says that the industry will evolve faster than academic debate on it, and that there will be a disaggregation of ‘hedge funds’ into strategy classes of which ‘long equity relative’ will be one. Also, with regards to private clients portfolios, hedge funds will follow the trend seen in Anglo’s Geneva clients’ portfolios, and become the dominant asset class.

Gerry Ryan, chairman of the IAPF, and administrator of eircom’s €3 billion pension fund, said that areas such as hedge funds, fund of funds and tactical asset allocation might now be worthy of

He added that the reappearance of positive returns to markets more recently should not distract pension funds from the need to continue to focus on maximising returns while minimising risk, saying that ‘Trustees will need to continue to assess their investment strategies and may now wish to investigate investment products outside the mainstream categories to see if additional returns can be generated, always ensuring that any risks are minimised’.

However, he cautioned, ‘One of the most frequently expressed concerns in this space is the capability of Irish funds to bear the cost of carrying out the essential due diligence required before committing to alternative products. I would ask that investment managers offering these choices bear this in mind and see if they can better assist trustees in this regard’.

Professor Louis Murray, Pioneer Professor of Funds Management at UCD said that academia had a role to play in supporting Ireland’s positioning as a centre of excellence in the investment funds industry with internationally trained experts and research facilities available.

Simon O’Sullivan, of Pioneer Alternative Investments, which has over $3 billion invested in hedge funds, and runs five single strategy funds out of Dublin, gave an overview of investing in hedge funds.

He identified the main differences between investing in hedge funds and mutual funds, see table 2.

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